Expedia Inc (NASDAQ:EXPE) also entered into a knowledge-sharing agreement with China’s leading OTA eLong, Inc. (ADR) (NASDAQ:LONG), in an attempt to grow its presence in China. Expedia is a major shareholder in eLong, and the new agreement is expected to improve the relationship. With a massive population and a rapidly growing economy, China is a highly lucrative market for Expedia. According to Expedia’s internal estimates, the Chinese online travel market is expected to surpass the $100 million mark by the end of this year.
Competitive landscape
Expedia Inc (NASDAQ:EXPE) competes directly with Priceline.com Inc (NASDAQ:PCLN). So far, Priceline has relied on strategic acquisitions in order to expand its footprint in the U.S. market.
At present, Priceline faces a serious threat from Expedia, although it surpassed Expedia in terms of revenue during 2010. Nonetheless, Expedia Inc (NASDAQ:EXPE) still dominates the U.S. market with a staggering 43% market share relative to which Priceline only holds 11% share.
Recently, Priceline completed its acquisition of Kayak for a whopping $1.8 billion. The company plans to strategically leverage this acquisition, similar to what it has consistently done in the past. With more than a 50% share in the meta-search market, Kayak’s acquisition is expected to facilitate Priceline in penetrating deeper into the U.S. market
Currently, the company is completely dedicated to capitalizing on the rapidly growing travel market in Asia. Nonetheless, so far it has experienced maximum traction from the European region.
Priceline reported a revenue growth rate of 33% in the last fiscal year. The staggering increase in revenue was primarily underpinned by strong growth witnessed in the European travel market.
The online travel agency has successfully created its presence in the large European market; nonetheless, with rapidly rising competition, it faces a serious threat of losing ground to more accomplished local players. Therefore, it becomes essential for the company to consistently develop on its existing presence in Asia in order to sustain overall growth.
Tripadvisor Inc (NASDAQ:TRIP) is another direct competitor to Expedia. As the industry is rapidly growing, thus, TripAdvisor also posted a 20% increase in its 2012 revenue. The strong growth was predominantly through increases in hotel shoppers and consistently growing international users.
The steady increase in revenue can be attributed to the growing traffic on its website through international markets. It is noteworthy that approximately 60% traffic on its websites is through international markets and only the remaining 40% comes through primary markets such as the U.S. and the UK.
To further bolster its presence in the international markets and enhance overall user engagement, TripAdvisor has started to produce website content in local languages. Going forward, this will provide the company with a distinct competitive advantage over its peers.
TripAdvisor launched its mobile website approximately three years back, in addition to offering mobile apps on several Internet-enabled devices. It is noteworthy that TripAdvisor’s app is the second most downloaded app after Google Inc (NASDAQ:GOOG) earth. To further bolster its revenue, TripAdvisor entered into a contract with Samsung, enabling its offering to be the only standalone pre-installed travel app on mobile devices.
Key takeaway
With markets such as the U.S. and the UK nearing saturation, several OTA companies are targeting international markets in order to sustain a healthy growth rate. In the present scenario, Asia Pacific is the fastest-growing market, hence, several OTA companies are attempting to enter the growing market by forming strategic alliances with local players.
I believe the initiative to form strategic partnerships will enable Expedia to deeply comprehend the local markets and augment its services accordingly.
While entering the fast-growing markets will help Expedia in the long run, the heavy investment required to sustain such a move may impact its margins and cash flow in the near term.
However, in the long term, Expedia Inc (NASDAQ:EXPE) seems primed to develop the underlying growth that Asia–pacific offers, hence, I advise investors to be patient and hold on to its stock.
Kiran Gulati has no position in any stocks mentioned. The Motley Fool recommends Priceline.com and TripAdvisor. The Motley Fool owns shares of Priceline.com and TripAdvisor.
The article Why Should You Be Bullish on Expedia? originally appeared on Fool.com.
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